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LEARNING SERIES >> What will it take for small merchants to embrace digital payments?

© ©Better Than Cash Alliance

Small merchants exert a big influence on the global economy.

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Small merchants exert a big influence on the global economy: micro and small enterprises (MSEs [2–49 employees]) contribute close to 40 percent of overall employment1 and are of crucial importance in achieving the 17 Sustainable Development Goals, especially Goals 1, 8, and 10.

In 2020, the World Bank estimated that person-to-business payments to micro, small, and medium enterprises (MSMEs) worldwide amount to US$18.8 trillion, with only 37 percent made electronically.2 The share of electronic business-to-business payments by MSMEs is 53 percent worldwide, but as low as 31 percent in South Asia.

37% of P2B payments to small retailers worldwide are made electronically

Digitization offers a pathway for merchants to build credit histories, access formal financial services, formalize their business, and earn higher profits.

Through our initiatives with governments and companies, we provide lessons to drive adoption of digital payments by MSEs.

Lesson 1: Low-cost access to shared digital public good infrastructure

Governments’ implementation of digital technologies as digital public goods and shared infrastructure is particularly important for driving down costs, increasing access to digital payments at the last mile, and enabling inclusion of vulnerable populations, especially women.

To bypass the deterrents to the adoption by MSEs of digital payments (cost of acquiring point-of-sale (PoS) machines, fees to payment service providers, etc.), options that require minimal upfront investments and connectivity – such as quick response (QR) codes – and that answer customer needs can accelerate digitization.

In India, the Unified Payments Interface (UPI) enables seamless transfer of funds across payment service providers offering an interoperable experience to users. UPI has scaled up to cover 170+ participating financial institutions, with a record 3 billion transactions totaling over INR 6 trillion in July 2021.

In Mexico, the 2019 Cobro Digital (CoDi) platform developed by the Central Bank uses QR code and near-field communication technology to rapidly connect users for secure, instant, and free digital transfers. As of September 2020, CoDi had onboarded 39 participating banks, with another 140 expressing interest, and more than 5.1 million validated accounts.

QR codes are also gaining traction in Ghana, Indonesia, Kenya, the Philippines, and Rwanda. Popularizing other low-cost and interoperable payment methods, such as mobile PoS, can also drive adoption.

Lesson 2: Develop and implement flexible incentive frameworks to drive adoption

Across our initiatives, we have seen that incentives that bring value for users play a catalytic role in nudging customers to habitual usage.

In Mexico, Grupo Bimbo (one of the biggest corner store suppliers and a member of the Alliance) and Blue Label Technologies (a leading provider of prepaid airtime) formed a joint venture named Red Quibo that has helped 80,000 merchants stay competitive by offering digital services such as mobile airtime and bill payments. By creating a value proposition for merchants beyond payments, Grupo Bimbo identified and incorporated incentives, like using the digital platform to offer new products to consumers (e.g., airtime), access formal working capital credit (e.g., through Fincomun, a local microfinance institution), and expand their customer base by catering to those looking to pay digitally.

In Côte d’Ivoire, we have developed an incentive tracker inspired by the Financial Inclusion Global Initiative (FIGI) framework to help the government track the various incentives being offered to merchants.

Lesson 3: Merchants value access to credit and tax incentives

Research and consultations with stakeholders from the public and private sectors in Mexico and the Philippines revealed two important factors that can help merchants to first formalize and then digitize: (i) access to credit, and (ii) tax incentives for formalizing.

The Consultative Group to Assist the Poor (CGAP) estimates that the unmet need for credit among MSEs in emerging markets amounts to US$4.9 trillion, with the informal sector representing 30 percent of this unmet demand.3

54% sales increase was recorded by merchants who adopted digital payments

In Mexico, larger businesses encouraged their smaller providers to use e-invoices, which helped bring an estimated 4.2 million microenterprises into the formal economy. Merchants who adopted digital payments recorded a 54 percent increase, adding US$640 on an average to their monthly sales revenue. Fast-moving consumer goods (FMCG) companies who digitized micro-merchants in their network saved 24 percent in their operational expenses. The government’s tax base grew by around 150 percent from 2010, which is linked to digitalization.

Lesson 4: Building merchant trust is a continuous process

Ensuring that user funds are protected and accessible (Principle 2) and having free and effective recourse systems (Principle 8) can give a boost to the adoption of digital payments. Treating all complaints equitably – regardless of the complaint’s value, status, or gender – can help to build a digital financial system that the merchants can trust.

In Ghana, our payment landscape survey identified barriers among merchants for electronic payment acceptance: 24 percent of respondents had experienced some form of digital payment fraud, and 42 percent of respondents indicated that they would not be swayed by incentives to pay digitally because of slow/failed/timed-out transactions and concerns about fraud.

In India, we brought the civil society, think-tanks, and community organizations together with the government and industry bodies to identify key steps which are vital in building women’s trust in digital payments and improving their financial security.

The success of digitization programs depends on the acceptance, adoption, and trust of the users. By factoring in their needs early, especially of women and underserved users, removing barriers, and using the United Nations Principles for Responsible Digital Payments as a common frame of reference, merchant payment digitization can be a win-win for all.


  1. International Labour Organization, Small Goes Digital, 2021, www.ilo.org/empent/units/boosting-employment-through-small-enterprise-development/WCMS_808632/lang–en/index.htm.
  2. Financial Inclusion Global Initiative, Electronic Payments Acceptance Incentives, 2020, https://documents1.worldbank.org/curated/en/793041588860799013/pdf/Electronic-Payments-Acceptance-Incentives-Literature-Review-and-Country-Examples.pdf.
  3. Consultative Group to Assist the Poor, Digital Credit Models for Small Businesses, 2019, www.cgap.org/research/publication/digital-credit-models-small-businesses.